“Medicare Payment Reform: Accelerating the Transformation of the US Healthcare Delivery System and Need for New Strategic Provider Alliances”

By Maria T. Currier, Esq., Holland & Knight, Miami, FL and Morris H. Miller, Esq., Holland & Knight, Tallahassee, FL

Review by Daniel Eliav, Loyola Law School, Los Angeles, Class of 2011

Medicare payment reforms signal an unprecedented shift in the delivery of healthcare. The reforms include bundling Medicare payments for acute care with payments for post-acute and physician services, the use of accountable-care organizations (“ACOs”), the development of medical home delivery models, and shared savings arrangements. Providers must begin to address organizational and legal considerations created by these reforms as an integral part of their strategic planning.

Under CMS’s current fee-for-service payment system, providers focus on more care, more intensive care, and more expensive care. In the coming years, CMS is transforming into an active purchaser of care forcing providers to focus on higher quality, favorable outcomes, and reduced costs.

Bundling payments is not a new concept. Under Medicare Part A, a hospital receives a single payment for all of the Diagnosis Related Group services provided in an inpatient stay. Similarly, under the Patient Protection and Affordable Care Act (the “Senate Bill”) a pilot program for integrated care has been put forth. Under the Senate Bill, payments are bundled for eight “applicable services” and other appropriate services. Applicable services include acute care inpatient services, physicians’ services, outpatient hospital services, and post-acute care. Therefore, a significant change under this system is that a hospital and physician would be reimbursed in a single payment.

The pending healthcare reforms also include provisions to create ACOs as an incentive for providers to produce high-quality, well-coordinated health care while containing costs. The defining characteristic of an ACO is joint responsibility for the quality of care and the cost of care received by the ACO’s patients. Under the pending health reform legislation, an ACO could consist of physicians, physician groups, partnerships or joint ventures between practitioners and hospitals, hospitals employing practitioners, and others. An ACO would be eligible to receive payments from the shared savings if it can reach certain quality standards.

Another aspect of the Medicare payment reform seeks to create a “medical home.” Providers of a medical home would focus on primary care and prevention by building the physician patient relationship. Whereas the existing system compensates physicians by the volume of services and tests, the medical home compensates physicians to for patient-centered services. As such, the goal of a medical home is to improve quality and care for complex cases, reduce preventable hospital stays, limit duplicative testing, and ultimately reduce expenditures.

Under the shared savings model, any financial savings that result from improved quality and cost efficient care for a particular group of patients are shared with physicians. Notably, the demonstration projects run by CMS required proof of a definite link between the incentive payment and the physician’s actions that contribute to the savings and quality improvement.

The payment reforms will encourage consolidation and integration. Organizations with a broad range of primary care physicians, specialists, ancillary care, and post-acute care capabilities will fit this model well.

Of course there are also many legal issues created by these reforms. Integrated systems and shared reimbursements raise multiple questions regarding contracting, liability, Stark law, anti-kickback statutes, anti-trust laws, and more. Legislatures and courts will have to make new exceptions and many changes to the current law in order to allow for these reforms.

For more information on this topic, see Volume 22, Number 3, Feburary 2010 of The Health Lawyer. [Members Only PDF].